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Rebalance your portfolio from "summary" of The Little Book of Common Sense Investing by John C. Bogle
The concept of rebalancing your portfolio is a critical component of successful investing. In essence, it involves periodically adjusting the allocation of your assets to ensure that they remain in line with your investment objectives and risk tolerance. By rebalancing, you bring your portfolio back to its target asset allocation, which helps to manage risk and optimize returns over the long term. Rebalancing is necessary because asset classes can perform differently over time, leading to a shift in the original asset allocation of your portfolio. For example, if stocks have a strong performance relative to bonds, your portfolio may become more heavily weighted towards stocks than you initially intended. This can expose you to greater risk than you are comfortable with. By rebalancing, you sell some of the assets that have performed well and buy more of the underperforming assets to bring your portfolio back into alignment with your target allocation. This forces you to buy low and sell high, a fundamental principle of successful investing. It also helps you to stay disciplined and avoid emotional decision-making based on short-term market fluctuations. While rebalancing can involve transaction costs and tax implications, the benefits of maintaining a balanced portfolio typically outweigh these concerns. Research has shown that rebalancing can enhance returns and reduce risk over time, leading to better long-term performance. It also helps you to stay focused on your investment goals and avoid making impulsive decisions that can derail your financial plans.- Rebalancing your portfolio is a simple yet powerful strategy that can help you achieve your investment objectives and build wealth over time. By periodically adjusting your asset allocation to maintain a balanced portfolio, you can manage risk, optimize returns, and stay disciplined in the face of market volatility. So, be sure to regularly review your portfolio and make any necessary adjustments to ensure that it remains in line with your long-term investment strategy.
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